My Surprising Top “Magnificent Seven” Stock Picks for 2025

The so-called “Magnificent Seven” stocks, made up of seven of the world’s largest technology companies, once again led the market rally in 2024. All 7 stocks in the group (including Apple, Amazon, and Alphabet) (GOOG 1.72%) (Google 1.54%)Meta-platforms Microsoft, Nvidia, and Tesla are on track to post positive profits this year. Nvidia is the pack leader for the second year in a row following a gain of over 238% in 2023, and is up over 168% year-to-date as of this writing.

With the group’s strong performance over the past two years, the question on many investors’ minds is which of these stocks will lead the group next year. You can sue any of the seven companies, but my prediction is that Alphabet will lead the way in 2025.

Alphabet is concerned about the slowness of Google search

Picking Alphabet as the Magnificent Seven stock most likely to outperform in 2025 is definitely a bold move. In the end, a federal judge ruled earlier this year that the company was an illegal monopoly that had acted unfairly to maintain its search dominance. Meanwhile, investors are concerned about the impact artificial intelligence (AI) will have on competitors’ search businesses. These two ideas inherently contradict each other, since a monopoly should not face the threat of intense competition, and yet Alphabet stock has been at the center of this debate for most of the year. I was caught inside. Essentially, it was heads that Alphabet lost, and tails that Alphabet lost.

But this lose-lose story should help Alphabet get through the relief phase of its antitrust lawsuit. On the other hand, the appeal process can be quite lengthy.

Google ultimately became the search leader because it had the best product, and Apple said it couldn’t afford to pay Microsoft to make Bing its own search engine. That’s about it. Now, a new AI-powered search solution has arrived from ChatGPT’s SearchGPT and Perplexity AI. These search engines aim to provide direct responses to users without screening link-based search results.

That’s great, but this is also what Google Search is doing now through AI Overview. Although there were some notable missteps early on, these results have gotten better and better. Google, on the other hand, has an established advertising network and a huge user base. Both of these are required to properly monetize AI search. These new competitors will need to acquire a significant number of users to attract enough advertisers for search. In the meantime, they will likely continue to burn through large amounts of cash trying to accomplish this.

So far, there has been little impact on Google’s business, with search revenue growing at a solid 12% year over year quarter over quarter. Additionally, the company has historically only served ads on about 20% of search results, so the emergence of new types of ads to accompany AI Overview should be a revenue driver in the future. At the same time, however, these new competitors should be seen as a sufficient threat to the company to avoid severe penalties in antitrust litigation.

Image source: Getty Images.

Alphabet’s innovation keeps the growth engine running

Meanwhile, Alphabet’s innovations have recently begun to come to the forefront. The company was one of the first to develop its own custom AI chip with support from Broadcom. As revenue for its cloud computing business rose 35% last quarter to $11.4 billion, the company used a combination of graphics processing units (GPUs) and new custom tensor processing units (TPUs). , recognized it as a key differentiator that contributed to reducing inference processing time. It also reduces costs. Meanwhile, the high-fixed-cost business is at an inflection point, with operating income jumping to $1.95 billion in the second quarter, from $266 million in the same period a year ago, to $1.2 billion.

Alphabet has also recently managed to hype up OpenAI and its 12 Days of OpenAI through a number of unique announcements. This includes introducing new cutting-edge updates to our AI image and video generation tools. OpenAI recently announced its AI video generator “Sora”, but it was heavily criticized for its unnatural motion despite its maximum output of 1080p. Google’s Veo 2 is 4K capable, and the company says it features “an improved understanding of real-world physics and the nuances of human movement and expression, helping to improve overall detail and realism.” states. I’ve seen demonstrations of X where people give random prompts, so I think this product is very noteworthy. It also helps remove the annoying finger artifact issue that the AI ​​seems to have.

Alphabet also announced a new Gemini 2.0 AI model that it says can function as an autonomous AI agent. Agentic AI is considered the next evolution of AI, where AI bots start working on your behalf. Alphabet plans to incorporate Gemini 2.0 into its AI search brief before expanding to other products.

But perhaps one of the company’s biggest announcements is that it has made a major breakthrough in quantum computing with its new Willow chip. The biggest problem with quantum computing has been errors during scale-up, and Willow has demonstrated the ability to suppress errors during scale-up. Although commercial use of this technology is still far away, Alphabet has demonstrated its leadership in this emerging field.

cheap evaluation

Investors can earn a lot of money by investing in Alphabet. First and foremost, they have a powerful search engine with significant AI monetization potential. It also has one of the top video streaming services and a top advertising network by YouTube. Investors will also receive one of three cloud computing giants that have just reached an inflection point in profitability. Next, investors get an early leader in self-driving in Waymo, which is already operating in multiple cities. They have also acquired cutting-edge companies in quantum computing and a major AI research company, of which DeepMind is a subsidiary.

This is a great mix of established companies and emerging companies that investors can acquire at a forward price/earnings ratio (P/E) of less than 22, making it one of the cheapest mega-cap tech stocks on the market.

Data by YCharts.

This combination of value, industry leadership, and valuation makes Alphabet one of the top 2025 Magnificent Seven stocks.